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Rent-A-Center's Solid Run on the Bourses Likely to Continue

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Shares of Rent-A-Center, Inc. (RCII - Free Report) have outperformed the industry in the past six months. We note that shares of this Plano, TX-based company have gained approximately 30% in the aforementioned time frame compared with the industry’s growth of 4.8%. Also, the stock has comfortably outperformed the Consumer Discretionary sector and the S&P 500 Index that advanced 3% and 3.7%, respectively, in the said time frame.

Meanwhile, this Zacks Rank #1 (Strong Buy) stock is hovering close to its 52-week high of $28.25. Also, a Value score of A suggests there is more room for the stock to run. It looks attractive with respect to a forward price-to-earnings (P/E) multiple of 11.5x versus industry’s 16.1x. A more-or-less similar picture emerges when comparing with price-to-book ratio. The stock holds the edge here with a P/B ratio of 3.6 lower than 8.0 for the industry.



Notably, analysts are steadily growing bullish on the stock. This is apparent from the rise in earnings estimates. The Zacks Consensus Estimate for financial year 2019 and 2020 has moved north by 6 cents and 7 cents to $2.26 and $2.58, respectively, in the past 30 days. The revision in estimates is in sync with the company’s forecast of adjusted earnings in the range of $2.05-$2.40 per share for 2019.

Factors Driving Rent-A-Center’s Performance

Rent-A-Center is gaining from initiatives such as cost containment, improving traffic trends, targeted value proposition, refranchising program and enhancing cash flow. Further, it is rationalizing store base and lowering debt load.

Also, the company focuses on enhancing omni-channel platform so that customers can experience a seamless approach across channels, markets, retailers, products and brands. In sync with this, it is increasing e-commerce offerings and mobile applications, and leveraging the cloud-based point-of-sale platform to manage orders more efficiently, lower losses and cut operating costs.

Speaking of cost savings, the company reduced costs by $70 million in 2018. For 2019, it expects cost saving of approximately $160 million on account of anticipated interest expense savings of $15 million to $20 million annually.

Including buyout of Merchants Preferred, a nationwide provider of virtual rent-to-own services, Rent-A-Center now anticipates consolidated revenues between $2.620 billion and $2.670 billion for 2019 compared with $2.585-$2.630 billion projected earlier. Management envisions consolidated same-store sales growth in the mid-single digits.

The company’s Acceptance Now business model is gaining traction as it enhances consumers’ shopping experience. Notably, same-store sales at the Acceptance Now segment improved 6% during the second quarter of 2019. With the buyout of Merchants Preferred, Rent-A-Center now expects Acceptance NOW revenues to be $725-$745 million, up from $700-$715 million projected earlier.

In addition, management has undertaken initiatives to strengthen the performance of its Core U.S. segment. The company expects to reap benefits from its Flexible Labor and Sourcing & Distribution endeavors. It is also optimizing product mix, increasing the average ticket price, upgrading workforce, concentrating on lowering delinquency rates and rationalizing existing stores as well as contemplating on new ones. We note that comparable-store sale at the Core U.S. segment rose 5.6% during the second quarter of 2019. Moreover, the company now expects Core U.S. revenues of $1.800-$1.825 billion compared with the prior view of $1.790-$1.815 billion.

All said, we are optimistic that Rent-A-Center’s growth plans will help keep its stellar show on.

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Weight Watchers International, Inc. (WW - Free Report) has a long-term earnings growth rate of 15% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

BrightView Holdings, Inc. (BV - Free Report) has a long-term earnings growth rate of 19% and a Zacks Rank #2 (Buy).

SP Plus Corporation (SP - Free Report) has a long-term earnings growth rate of 10% and a Zacks Rank #2.

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